Article

Talk to Your Banker

A proactive stance is crucial for the sustainability of most businesses, as well as a demonstration of leadership during a time of great crisis.  Step one in this proactivity is getting a handle on your financial situation, and this includes talking to your banker.

Contact Us
< Back to Insights
Insights  <  Talk to Your Banker About the PPP/CARES Act

A proactive stance is crucial for the sustainability of most businesses, as well as a demonstration of leadership during a time of great crisis.  Step one in this proactivity is getting a handle on your financial situation, and this includes talking to your banker.

We’ve entered a time of great uncertainty for businesses of all sizes.  Many are wondering how long their cashflow is going to last, how they’re going to pay their employees that may or may not be able to work, and when will things get back to “normal,” among many other concerns.  A proactive stance is crucial for the sustainability of most businesses, as well as a demonstration of leadership during a time of great crisis.  Step one in this proactivity is getting a handle on your financial situation, and this includes talking to your banker.

In fact, your relationship with your banker is now more important than ever.  Don’t delay having a conversation with him or her.  Knowledge is always helpful in allaying anxieties, and the more you’re able to understand about what your financial institution can and cannot do for you, the more peace of mind you’ll experience (at a minimum).

Before speaking with your banker, get prepared for the discussion.  Read the CARES Act (and Paycheck Protection Program provision) and determine how it will impact your business.  Plan to talk to your banker to understand the role the bank is playing and how they might be able to assist you.  Look closely, too, at your revenue and expenses and try to predict how the current crisis will impact your cash flow over the next six to nine months.  It is important that you understand these issues, and be able to communicate your needs, if any.  Here are some questions you may want to ask:

  • What emergency measures are your bank implementing for businesses impacted by the crisis – waiving fees, increasing credit lines?
  • Will your bank reduce or suspend principal payments on loans and move to interest-only payments for the time being?
  • Will your bank help with restructuring your business loan?
  • Can you consolidate loans to make repayments more manageable?
  • Are they offering any short-term funding solutions?

In addition to the Paycheck Protection Program loans, Economic Injury Disaster Loans, and other loans being administered by the U.S. Small Business Administration (SBA), the basic and time-tested business line of credit might be the short-term answer to meeting an unexpected demand.  The benefit of a line of credit is that you pay only for what you have borrowed but have peace of mind knowing that the full line is available if and when needed.  This is a good option for businesses who have not yet been hard hit by the current crisis but recognize the importance of being prepared for eventual financial hardship.

A business term loan is another financial relief option, particularly for a small business.  A traditional business term loan is a lump sum of money that is paid back in scheduled repayments at a fixed interest rate.  These loans typically have a one- to five-year repayment period.  While most businesses look to a term loan to fund a singular investment for their small operation, this could be an economic savior for some organizations during these unprecedented times.

Forbearance programs can buy businesses with mortgages some breathing room. In the context of a mortgage process, forbearance is a special agreement between the lender and the borrower to delay a foreclosure.  In such situations, the bank delays its right to exercise foreclosure if the business can catch up to its payment schedule by a certain time.  For example, the bank may agree to allow the business to pay a lower monthly amount through the end of the year, and then pay a higher amount at the beginning of next year.  This period and the payment plan depend on the details of the agreement that is accepted by both parties.

The good news is that U.S. banks are proactively responding to the current and anticipated ramifications of the novel coronavirus.  Over the course of the past couple weeks, banks across the nation have implemented relief plans targeted to consumers and small to mid-sized businesses.

The waterfall effect this fluid health crisis is having on businesses of all sizes and the economy in general has yet to be completely determined.  Being prepared is the best defense against potential financial turmoil.

Be open and honest in your conversation with your banker – share what you’re doing to avoid potential problems and ask for their advice.  Hope for the best, prepare for the worst, but either way, try and be ahead of whatever comes, as much as possible.  Remember, the relationship between you and your banker is a partnership – and we’re all in this together.

 

COVID-19 Business Resources

Continue the Conversation with Our Team
Get in touch with us.

Contact Us